- The Washington Times - Monday, August 30, 2010

This year’s debate over extending President George W. Bush’s tax cuts has turned into a brawl over which party is doing more for small businesses, with assertions that the health of the economy and thousands of future jobs are at stake.

As often happens, both parties are making valid points drawn from a selective reading of the facts, while neither side is revealing the whole, complex picture surrounding the link between small-business taxes and job growth.

Republicans repeatedly accuse Democrats of planning to raise taxes on the small businesses that typically play a disproportionate role in creating millions of jobs each year. They cite as evidence a paper released in July by the Joint Tax Committee, which estimated that 50 percent of about $1 trillion in business income next year will be taxed at the two highest rates if the Bush tax cuts are allowed to expire Dec. 30.

That will leave businesses with less money to hire, Republicans say.

But the paper also supports the Democratic counterargument that only a small proportion of taxpayers who report their business income as personal income — 3 percent, or fewer than 750,000 — will be subject to the higher rates under President Obama’s plan. The president wants to extend the tax cuts — except those for a relatively small number of single people earning more than $200,000 and married couples earning more than $250,000.

The Joint Tax Committee explains the seeming contradiction by pointing out that not all of the businesses that report income on personal tax forms — and thus are subject to the higher tax rates — meet a common definition of a small businesses. In 2005, the committee said, nearly 20,000 such businesses had revenues exceeding $50 million.

Those businesses apparently are the ones generating most of the income that is subject to higher taxes.

Just back from his vacation on Martha’s Vineyard, Mr. Obama wasted no time in resuming the debate. Appearing in the White House Rose Garden on Monday, he accused congressional Republicans of holding “hostage” a key bill that would promote lending to small businesses.

Congress‘ “first order of business” when it returns from its summer recess should be to pass a measure aimed at enticing community banks to lend more to credit-strapped small firms, the president said.

“Holding this bill hostage is directly detrimental to our economic growth,” Mr. Obama said. “So I ask Senate Republicans to drop the blockade.”

While economists agree that Congress should do more to help small businesses obtain loans, Republicans filibustered the bill just before the Senate adjourned for its five-week break on the grounds that Democrats had added nonessential spending and were refusing to allow Republicans to offer many amendments.

In particular, Republicans wanted to have a debate on a measure providing regulatory relief to small businesses by repealing a provision in the health care bill forcing them to compile extra paperwork to prove compliance with the tax laws.

Senate Minority Leader Mitch McConnell, Kentucky Republican, returned to the tax debate Monday, saying the GOP remains determined to keep all the Bush-era tax cuts in place to help small businesses.

Small-business groups and many Republicans vehemently insist that the president’s plan would “kill” small businesses and the jobs they create. The president would allow the top two tax rates of 33 percent and 35 percent to revert to Clinton-era levels of 36 percent and 39.6 percent, respectively.

The National Federation of Independent Business — the leading representative of small businesses — said its surveys show that the businesses most likely to face tax increases are those with 20 to 250 employees. But the federation conceded that those employers currently employ less than 25 percent of the total work force.

Story Continues →